CLI Cls Holdings Plc

 

TIDMCLI 
 
RNS Number : 9075V 
CLS Holdings PLC 
10 November 2010 
 

Release date: 10 November 2010 
 
 
 
                                CLS Holdings plc 
                      ("CLS", the "Company" or the "Group") 
  Interim Management Statement for the period 1 July 2010 to 10 November 2010 
 
The Company today announces its Interim Management Statement for the period 1 
July 2010 to 10 November 2010. 
 
HIGHLIGHTS 
 
·     Acquisition of Apex Tower, New Malden for GBP21.5 million 
·     Acquisition of Colt Group's Paris headquarters for EUR14.3 million 
·     Further pre let developments in Munich and in Landshut, Germany 
·     Strong performance of Catena AB 
·     New leases, lease renewals and extensions completed on 16,957 sq m 
·     Weighted average cost of debt of 4.3% 
·     Over GBP125 million of liquid resources available for investment 
 
OVERVIEW - The Group has made acquisitions in the UK and in France, and entered 
into two pre-let development agreements in Germany since 1 July.  The vacancy 
rate by rental value is 5.0%, which would fall to 4.2% after accounting for 
leases under offer.  The market value of the Group's 29.99% interest in 
Stockholm-listed property company Catena AB would add 35 pence per share to net 
asset value, and the core CLS business has continued to generate high net 
initial yields against a low cost debt base. 
 
UK (LONDON) - Since 1 July, commercial letting markets have remained  sensitive 
to the recessionary climate for occupiers, but the falling vacancy rate in the 
central London office market has helped rental value stability.  Sentiment in 
the prime investment market has remained positive and yields have stabilised 
following the sharp compression in 2009.  There continue to be good 
opportunities to acquire attractive secondary stock and we are actively seeking 
new acquisitions. 
 
On 1 November, we completed the purchase of Apex Tower, New Malden for GBP21.5 
million, equating to a net initial yield of 8.66% and return on equity of 16.1%. 
 The property, which is predominantly let to BAE Systems until June 2020, 
produces a rental of GBP1.86 million per annum. 
 
We are progressing medium-term redevelopment plans for our two major sites in 
Vauxhall and will provide further details in the coming months. 
 
Lease renewals were completed on 296 sq m (3,186 sq ft), new lettings were 
achieved on 2,514 sq m (27,060 sq ft) and tenants vacated from 3,496 sq m 
(37,631 sq ft).The vacancy rate by rental value rose from 5.4% at 30 June 2010 
to 5.8%. This includes space intentionally taken back at Westminster Tower for 
enhancement, and we are cautiously encouraged by signs of tenant activity and 
new demand. 
 
FRANCE - Since 1 July, the French investment market has continued to be 
characterised by investor demand significantly exceeding the supply of good 
quality product, and prime yields which were 5.75% are now nearer 5%. 
Investment market activity since 1 January 2010 of EUR6.9 billion was over 40% 
above the equivalent period last year, and the letting market was 33% above 
levels of a year earlier. 
 
In October we acquired 23/27 Rue Pierre Valette, Malakoff, Paris for EUR14.3 
million, on an initial yield of 7.38% and producing a return on equity of 15.3%. 
 The 10,778 sq m (116,014 sq ft) property is let at EUR1.1 million p.a. on an 
index-linked lease until 2018 to Colt Group S.A. as its French subsidiary 
headquarters and network node. 
 
During the period, leases expired on 5,978 sq m (64,347 sq ft), of which 3,303 
sq m (35,553 sq ft) renewed, and a further 1,592 sq m (17,136 sq ft) was leased. 
 Due to the acquisition of Malakoff, the resulting void rate by rental value was 
virtually unchanged at 4.8% (30 June 2010: 4.7%). 
 
GERMANY - Real estate investment market activity in Germany in 2010 has been 
more than double that of the previous year.  Although across the entire market 
voids are over 10%, letting market activity has increased marginally in 2010, 
GDP growth is expected to remain strong, and unemployment has now fallen to its 
lowest level for 18 years. 
 
Since 1 July we have agreed to develop two buildings for existing tenants in 
Germany: 
·     At Gräfelfing in Munich, Dr Hönle AG will add 1,642 sq m of space to 
create an 8,527 sq m (91,783 sq ft) complex in total.  The new office, to be 
completed in 2011, has been let, along with the existing space, on a combined 
new index-linked lease to October 2020 at an initial EUR1.1 million p.a., 
representing an initial yield of 7.7% and a return on equity of 18.3% p.a. 
·     At Landshut, E.ON will take a fourth building, to be built by summer 2012. 
 The new space will comprise 3,400 sq m (36,597 sq ft) of offices generating 
EUR410,000 p.a. on an index-linked lease until 2030 with no breaks, and 
representing a return on equity of 14.9% p.a. with an initial yield of 8.2% 
 
Since 1 July, new lettings were achieved on 2,367 sq m (25,478 sq ft), lease 
renewals completed on 6,885 sq m (74,100 sq ft), and a further 1,622 sq m 
(17,459 sq ft) became vacant. There has been a fall in the vacancy rate by 
rental value to 5.5% (30 June 2010: 5.9%). 
 
SWEDEN - The void rate of the Vänerparken portfolio, currently the Group's only 
direct property investment in Sweden, is 1.0%. 
 
In October, Catena AB, a Stockholm-listed property company in which CLS owns 
29.99%, distributed a special dividend, of which our share was GBP8.6 million. 
Following a significant re-rating of its shares since June reflecting property 
sales, improving values in a strong market, and the development potential of one 
of its major assets, the market value of our interest in Catena now exceeds its 
current book value by over GBP16 million, which would add the equivalent of 35 
pence per share to CLS's net asset value. 
 
FINANCE - At 1 November 2010, following the acquisitions in New Malden and 
Paris, borrowings were GBP580.3 million (30 June 2010: GBP554.6 million).  In 
October, interest rate caps were taken out against loans with a nominal value of 
GBP206 million for predominantly five years at a weighted average strike rate of 
2.67%, leaving 95% of the Group's debt hedged and with a weighted average total 
cost of debt of 4.3%.  Cash and undrawn facilities stood at GBP45.3 million (30 
June 2010: GBP64.0 million), and the Group held corporate bonds with a value of 
GBP84.0 million (30 June 2010: GBP58.7 million). 
 
At 1 November 2010 the Group had 59 bank loans from 20 banks; none of the bank 
loan covenants was in breach. 
 
Underlying profit continued to be resilient, with stable net rental income, high 
debt collection rates, and tightly controlled costs. 
 
DIRECTORATE CHANGES - On 1 January 2011, Richard Tice (Deputy Chief Executive 
Officer) will become Chief Executive Officer, Henry Klotz (Chief Executive 
Officer) will become Executive Vice Chairman, and Thomas Lundqvist will step 
down as Non-Executive Vice Chairman but remain as a Non-Executive Director. 
 
Executive Chairman of CLS, Sten Mortstedt, commented: 
 
"The acquisitions in London and Paris, and the development initiatives in 
Germany, continue our investment strategy of focusing on high, secure 
cash-on-cash returns, meeting the needs of tenants, and reacting swiftly to 
opportunities in our chosen markets.  The strongest market so far this year has 
been Sweden. 
 
In the prevailing economic climate, our high initial yield and low cost of debt 
are key to our continued success.  Our focus remains on active portfolio 
management to keep vacancy rates low across the portfolio and, with significant 
resources at its disposal, the Company remains well placed to take advantage of 
investment opportunities as they arise. 
 
I believe the Board changes announced today reflect the most appropriate 
management structure to take the Company forward to meet its objectives and 
ambitions." 
 
                                     -ends- 
 
For further information, please contact: 
 
Sten Mortstedt, Executive Chairman, CLS Holdings plc                    +44 
(0)20 7582 7766 
 
Henry Klotz, Chief Executive Officer, CLS Holdings plc                  +44 
(0)20 7582 7766 
 
Richard Tice, Deputy Chief Executive Officer, CLS Holdings plc     +44 (0)20 
7582 7766 
 
Jonathan Gray, Kinmont Limited 
  +44 (0)20 7087 9100 
 
Alex Simmons, Smithfield Consultants 
+44(0)20 7903 0669 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
 IMSLLFVDLVLAIII 
 

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